HGV and Truck Finance
Do you own or do you want to start a haulage company? Do you want to invest in your first, second or third truck? Or do you own a fleet of trucks and want to release some capital?
There are a number of ways that you can grow your Haulage business and we can help you access the money you need to do so. Like with all types of finance, it is important to choose the right type of finance that suits your business and its circumstances.
Below we explain some of the most common forms of finance available for Trucks and HGVs, as well as the potential positives and negatives
Hire Purchase for HGVs and Trucks
Hire Purchase is a very common way in which businesses can access finance to buy new or second-hand trucks. It is a great way of being able to spread the payments of the truck over time and help support the cash flow of the business. There are no large upfront payments, like with other types of finance and you just pay your fixed monthly repayment every month. After the agreed number of months hiring the asset, you will own it. Hence the term Hire Purchase – You hire it until you own it.
Positives of Hire Purchasing Trucks and HGVs:
- Set fixed monthly payments so you can easily manage your cashflow
- Directors don’t need to be homeowners – Unlike other forms of finance, with hire purchasing or asset finance, the lender will use the truck as the guarantee and not look for a director’s home or other assets. This means if you miss repayments for any reason the lender will take the truck first and not your home.
- You own the asset – At the end of the hire agreement, the truck will be owned by the company and sit on the balance sheet – While not necessarily an advantage or disadvantage, when you wish to sell your company there are assets which will increase the companies valuation.
- Price – It is often cheaper to Hire Purchase than Lease. Not just because you can purchase second-hand trucks and trailers, but because there is less flexibility then Leasing.
- Second Hand – It is much easier to buy a second-hand truck on Hire Purchase than Leasing. This means you have more flexibility in what you want to buy. Just a word of warning – before you buy anything, please give us a call and make sure the lender will lend against the truck you want to buy. Also, if a truck is a certain age, the lender may send out an assessor to check over the truck before it is purchased. Remember you only own the truck once you have finished your repayments, so the lender wants to make sure it is worth what you are paying for it.
- Trailers, Tanks and Tippers – As you can Hire Purchase second-hand vehicles, you can also Hire Purchase your Trailer, Tanks and Tippers. This allows you to know exactly what your monthly expenses will be, making cashflow and budgeting a lot easier.
- Bad Credit – It may be easier to get a Hire Purchase if you have Bad Credit or a CCJ. Always get in touch and see how we can help you, despite of your credit situation. You might be pleasantly surprised.
Negatives of Hire Purchasing Trucks and HGVs:
- Tax – When you purchase a truck using Hire Purchase you are essentially contracting to hire the truck with a compulsory transfer of ownership at the end. This means in accounting terms; this truck will go onto the companies Balance Sheet. In other words, you cannot write off the cost of buying that asset as a loss to the company. This makes Hire Purchasing less tax efficient for the company, as it doesn’t decrease your corporation tax liability. Leasing on the other hand does. (See Below)
- Servicing – As you are buying the asset, most times there is no free servicing included. With truck finance, especially for new vehicles, you will find garages will charge you more, but offer free servicing and other perks that can potentially make leasing much better value for money then hire purchase. It is important to do the maths before making these decisions
- Purchasing payment – When looking at financing deals, remember that at the end of the contract you will have to make a final payment to buy the asset. Make sure that it is worthwhile to actually buy the asset at the end, especially after you take this final payment into account to transfer the asset to the company’s name.
Lease Finance for HGVs and Trucks
Another form of popular finance for trucks is Leasing. Leasing tends to be used more for new trucks as it relies on the asset having a longer shelf like as it remains the ownership of the lender. Essentially with leasing, the lender retains ownership of the truck. The advantage of this is that you can regularly upgrade your truck or HGV at the end of your contract period. When the average HGV spends over £1500 on fuel per week, there is a huge cash advantage to making sure you have the most fuel-efficient model on the market and the truck you are working with has the capacity to do the job it needs to do.
At the end of your leasing period, you can often choose to buy the truck, upgrade the truck or simply return it and walk away. This gives you the freedom and flexibility to grow or shrink your fleet depending on the market and how busy your company is.
Positives of Leasing Trucks and HGVs:
- New model – Having the flexibility to upgrade your truck regularly gives you the power to make sure you have the most fuel-efficient and ‘clean’ truck on the market.
- Size – As you can upgrade easily, you can have the freedom to change the size of your truck or HGV, as the business grows or shrinks.
- Best Value – As you can just give the truck back after your leasing period, it gives you the ability to go back to the market and find the cheapest lenders at that time. As markets change, finance can be cheaper or more expensive.
- Trailers, Tanks and Tippers – you can even potentially lease new Trailers, Tanks and Tippers. Again, this gives you the ability to grow or shrink your accessories depending on the demand and goods your business is taking at that time.
- Length of Contract – You can often choose whether you want a long or short leasing contract. This means you can lease for the whole working life of the truck or agree to a much shorter period to give you more flexibility to upgrade quicker.
- Services, Repairs and Insurance – As you never own the asset and the trucks are often new, you will find most garages and dealers will throw in free servicing, repairs (to a value) and insurance – to encourage you to lease from them. It is important to do the maths on these contracts as they are a lot more expensive, however often it can work out cheaper. Especially when servicing an HGV can be over £1,000 a month.
- Emergency Replacements – Also as the asset is owned by the leasing company and has a warranty, there is often an emergency cover for a replacement truck if yours is off the road. This is crucial as often a day of lost income can cost a haulage company over £10,000. Having a quick replacement truck or HGV from your lender, will you’re your business potentially tens of thousands of pounds in opportunity costs when something goes wrong.
- Tax – As you are leasing and don’t technically own the asset, you can write the lease payments off as a loss to the company. This means your taxable income on your profits for corporation tax will shrink. This is what often is referred to as ‘debt being cheaper than ownership’. For some companies, especially ones with lots of trucks, this could save them hundreds of thousands a year.
Negatives of Leasing Trucks and HGVs:
- Ownership – You never actually own the asset. Meaning it is never on your balance sheet as being yours, unless you choose to buy it at the end of the lease period.
- Valuation – As you don’t own any trucks with leasing, the valuation of your company may potentially be stifled by not owning assets. It also makes your business a lot more dependent on a 3rd party company who owns your trucks. This may not be important to your business but will stop future investors or companies from buying your business in the future. It will make an exit very difficult.
- Cost – It is substantially more expensive to Lease than Hire Purchase. You pay more for the freedom and flexibility that leasing provides. However, when you look at the pros, it can actually work out as better value for money when you look at the total costs. It is important you do the maths and be honest with our team, so we can work out the best value for your business.
- Deposit – Often with Leasing, you will be required to pay a deposit to start the agreement. This will be normally between 10%-15% of the truck. However, don’t fret, we can help you find lenders who will lend you this deposit if you can’t access the funds.
- Personal Guarantee – As you don’t technically own the asset, the lender will be more likely to ask you for a personal guarantee. However, if for any reason you can’t make payments anymore, the truck will simply be repossessed, which should cover the cost of the lease. Remember you can always return the truck if you can’t pay for any reason.
Sale and HP Back for HGVs and Trucks
‘Sale and HP back’ is another way of using Asset Finance to fund your new Trucks and HGVs when you already own other trucks or assets. It is essentially the same as Hire Purchase, however, you sell the truck to the Lender first and then buy it back from them in set fixed monthly repayments. This means they buy the asset from you, however when you make all your payments, you will own it again.
It is a great way of unlocking working capital for expansion plans, especially if you own a fleet of trucks. It is also a great way of safely expanding your fleet, as you never put more than 1 truck at risk, at a time. Once one is paid back, you are refinancing it, to pay the deposit on the second one and so forth. Sale and HP Back aren’t limited to trucks. It can be used on everything from Trailers, Tankers and Tippers, to cabin fit-outs as well.
Refinancing HGVs and Trucks
Refinancing is a great way of releasing cash into your business. It doesn’t matter if you own one or a fleet of trucks, you can refinance these assets to release the working capital you need to grow. Refinancing essentially means borrowing money against the value of your Trucks or HGVs. If your truck is worth £150,000 black book – Then a lender may lend you a loan for £130,000 for a set period of time. If for any reason you can’t pay it back, they will take the truck and that will be it.
An important thing to note is that a lender will never lend you more than the resale value of the truck and they will never lend you the money for a period of time, where the asset won’t be worth as much as what you owe. The lender needs to make sure that at all times, they can sell the truck to recoup their money if you stop making repayments.
Other Truck or HGV related finance
There are lots of products available on the market to help finance your haulage company. Our team can help you fund everything from Trailers, to Tankers to Fitouts. We know the pain points to running a haulage company. The running costs of a haulage company, such as petrol and servicing can be huge and when invoicing periods can be sometimes 60 days long, post-completion, cashflow can be a nightmare. We can help your business with products such as Invoice Financing, Discounting, Growth Finance or every Revolving Credit Facilities that can take that burden off you and your business.
Every business is different so get in touch today and let our Experts and Partners tell you what finance you can access, to help your business grow and make your life a lot easier.
